Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.
In Practice February 28, 2019
Advisers Find Outsourcing Key to Growing Practices
Technology, investment management, and legal and compliance are the top three areas where advisory practices often turn to outside experts, according to Fidelity.
Reported by Lee Barney
Outside specialists can provide a great deal of value to a financial advisory practice, according to the Fidelity Financial Advisor Community: Outsourcing Trends Study. Forty-three percent of the 338 advisers surveyed last May say that their firms hire external consultants, third-party providers or individual specialists for certain functions.
The top three functions that are outsourced are IT/technology, cited by 48%, followed by investment management and portfolio construction (40%), and legal and compliance (37%). Advisers say this outsourcing permits them to focus on their core business and advance the client experience up what Fidelity calls the “value stack.” This is to say advisers can spend more time helping clients define and achieve their goals, and have greater peace of mind.
The reason advisers gave for outsourcing IT/technology was lack of internal expertise. When outsourcing this function, 69% of advisers said this was successful. As for outsourcing investment management and portfolio construction, advisers said the reason for this is to create more value for clients, and 64% said doing this was successful. Finally, the reason why advisory practices outsource legal and compliance functions was lack of internal expertise, with 74% saying doing this is effective.
Overall, 84% of advisers said outsourcing has been a positive experience. Asked why, they said this saves them time (77%), makes them more productive (66%), makes them more efficient (57%) and frees up their time to focus on deepening client relationships (53%).
The bottom line when outsourcing is undeniable, Fidelity’s study concludes. Individuals or teams that outsource have average assets under management (AUM) of $145 million, versus $110 million for those who do not. They earn an average of $365,000, compared to $335,000 for those who do not. Eighty-one percent of advisers or advisory practices that outsource have increased their client base in the past year, compared to 71% of those who do not outsource, and 95% of the former have seen their AUM rise in the past year, compared to 89% of the latter.